Amazon Exits Incentives Market * What It Means for You

News broke this week that
Amazon.com is exiting the corporate rewards merchandise fulfillment business it entered in 2007. For its traditional catalog merchandise incentive company partners, Amazon’s
Merchandise Rewards arm acted as the unseen drop-shipment fulfillment provider. According to
Incentive Magazine, Amazon’s merchandise rewards partners were given 45 days notice with a few of the largest partners being given more time. Amazon is not exiting the gift card and electronic gift code business. Two important questions arise from this announcement:
Why is Amazon exiting incentives? There is much speculation, but four credible reasons rise to the surface.
1) Taxes -- Collection of sales tax is done state by state in the U.S., and this has been a long fought battle. Currently online retailers do not have to collect sales tax on merchandise sold in states in which they do not have a physical presence. This week, Amazon fired thousands of affiliates in Colorado, saying it refused to be forced to collect taxes under a new state law. (More details available from the
Denver Post.)
2) Direct Customer Access – Amazon wanted direct access to the consumers choosing rewards through the Amazon platform, which was blocked by the incentive company partner.
3) Customer Service – Paul Hebert at
Incentive Intelligence tells us his sources say: “Although profitable, the decision was made to drop fulfillment through incentive programs due to customer service issues. … From Amazon's point of view this created a negative impression of their customer service.”
4) Excessive markups by incentive providers - My own sources tell me that customers were complaining to Amazon of feeling ripped off by the prices they were paying for the incentive reward (usually 30-50% greater) in comparison to the price of the item directly on Amazon, hurting Amazon’s brand image.
What does this mean for companies who offer recognition or incentive programs to their employees? The answer depends on who you rely on as your recognition or incentive program provider.
If you rely on a traditional merchandise catalog provider, you can expect: 1)
A far smaller catalog offering as your provider will have to remove the thousands to hundreds of thousands of options they offered through Amazon, drastically limiting employee reward choice. Although these merchandise providers will be looking for an Amazon replacement, any who might consider it will face the same challenge of state taxes and the same desire for direct customer access. 2)
Removal of low value rewards entirely or replacement of these rewards with gift cards. Amazon made it easy for traditional rewards catalogs to offer smaller merchandise awards with a value less than $50 – something they could not do otherwise as the S&H expenses are too high. 3)
A continuation of massive markup rip-offs on merchandise reward items.
If you rely on Globoforce to provide a mix of globally desired rewards, there is no change. We are a long and trusted partner of Amazon, offering their gift cards and electronic codes through our global ex*change network of thousands of providers around the world. As always, we give your program participants access to ALL of Amazon’s merchandise at no mark-up. Dollar for dollar, euro for euro, yuan for yuan, employees know the exact value of their reward.
Ask yourself: If you use a merchandise provider to fulfill your recognition or incentive program, how do they justify this massive rip-off of employees? Amazon chose to exit the market rather than harm their brand image. How do you envision offering such a program would affect your own brand image? Do you really know who your suppliers are? What happens to your recognition program if one of their hidden suppliers decides to end their relationship, like Amazon recently did?

"Ayubag, thanks for contributing your insight. You are right -- the recognition of the person and his/her behavior or actions is far more important than the reward! "

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Ayuba Gadzama

April 12, 2010 02:42 PM

"Hi Derek,

First of all, i think having a good image is worth much more than whatever profit a company will make, of course they stand a chance of losing the profit over law suites and related matter. What is worth doing is worh doing well especially when it has to do with people. Agreed companies are recovering from the global meltdown but then again, this is a good time to be as open and transparent to both yor internal and external customers towards retaining them.

On your second question, i believe there are so many recognition programs or initiatives that are not tied to gifts or the likes of Amazon. An organization in the first place may need to review it's recognition program decide, who really deserves the recognition, is it all staff, high fliers, exceptional performance etc. Then it can now plot out differnt plans for each of the category.

Organizations may decide to go direct (at a premium for really deserving employees)within the confines of the law in the long run if this trend persists.